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Wednesday, December 3 de 2014

Ministry of Finance: “Chile has successfully placed dollar and euro bonds for US$ 2.052 billion”

  • The dollar bond placement totaled US$ 1.060 billion, with a demand of US$ 3.732 billion, which implies a demand-supply ratio of 3.5 times.
  • This operation included fresh resources of US$ 508 million and a repurchase of sovereign bonds of US$ 552 million.
  • Alberto Arenas stated that in the context of the current market, the high demand and the rates applied confirm investors’ confidence in the future of Chile.

The Finance Minister, Alberto Arenas, reported that on December 3rd the Republic of Chile placed two sovereign bonds in the international markets, one in euros and one in dollars, for a total equivalent to US$ 2.052 billion. “This is the biggest issue Chile has made since returning to the international debt markets in 1990,” he said.

“Our issue attracted strong demand, demonstrating the enthusiasm of international investors. As soon as the operation was finalized, I called the President to inform her of the details on the amounts,” the minister commented.

Arenas reported that both issues obtained very low interest rates for the Government of Chile in the current market context, which will establish advantageous benchmark rates for Chilean firms in external financial markets.

“In the case of the dollar bond placement, we raised a total of US$ 1.060 billion, with a demand of US$ 3.732 billion, which implies a ratio of demand to supply of 3.5 times. The operation was more sophisticated than the euro bond placement, in that we not only raised fresh resources of US$ 508 million, but also repurchased sovereign bonds totaling US$ 552 million. The interest rate obtained on this bond was 3.185%, so the spread was 90 basis points over the interest rate on ten-year U.S. Treasury bonds,” he announced.

The demand for the dollar bond totaled 176 investors from the United States, Europe, Latin America and Asia.

The head of public finances explained that the debt repurchase had the dual objective of increasing the liquidity of the new dollar issue and, at the same time, alleviating the government’s future amortization schedule.

Arenas emphasized that the 90-basis-point spread on this issue compares favorably with the spreads on Chilean issues since 2010.

“Financial conditions have clearly deteriorated for emerging economies since 2010. The EMBI Latin America rose 131 basis points in this period,” he commented.

The deterioration had a proportional effect on Chile. Whereas in 2010, 2011 and 2012 the spread on ten-year dollar-denominated sovereign bond issues represented 23% of the Latin American spread on average, the spread obtained on this issue equals 19% of the region’s risk.

Euro bonds

In the morning, Chile placed a bond for 800 million euros (about US$ 992 million), with a maturity of ten years and an annual yield of 1.745%. The demand for this bond was US$ 3.000 billion, which implies a ratio of demand to supply of 3.75 times. The rate represents a spread of 75 basis points over the euro risk-free rate. This is the lowest interest rate that Chile has obtained in its history of issuing bonds in international markets. The bond’s coupon is the lowest for an emerging market bond with a ten-year maturity.

“This reflects the fact that external investors have not changed their perception on the economic and institutional strength of Chile. Even more, the bond placements are an act of confidence in the economic future of Chile,” Arenas said.

Taken as a whole, this issue was successful along different dimensions: “We met all our objectives, which were to take advantage of the current low interest rates in the European bond market and to create a new benchmark interest rate for Chilean firms that seek financing in international markets.”

The minister specified that the proceeds from this issue will enter the Treasury and be used to finance the capitalization of Codelco, through the execution of the company’s investment plans. This is consistent with the provisions of Law N°20,790, under which the issue was carried out.

Alberto Arenas praised the work of the Finance Ministry team and the collaborating banks Citibank, HSBC and Santander.

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